Indian Telecom Market Shares - status check before RelJio's Tsunami arrives.

We all know that the Indian Telecom sector is at the cusp of a major reshuffle in the coming months/quarters as RelJio is slated to start offering it's 4G services very soon. So I thought it fit to do a status check of market shares of all the existing Telecom operators in the country. And while doing this data collation & analysis, I did find many interesting findings.

We have a total of 12 active telecom operators in the country with the 13th one to start operations very soon. Out of the existing 12, 5 operators are regional ones with operations in less than 7 circles each. I have collated data on the Quarterly Adjusted Gross Revenues (AGR) and Quarter-ending Wireless Subscribers market shares of all the operators. Please do note that the AGR includes both Wireless & Wireline operations of operators active in both segments.

BSNL&MTNL, Bharti Airtel, Reliance Communications and Tata Teleservices have some notable Wireline operations in various circles across the country. Amongst these BSNL&MTNL are the biggest ones controlling around 75 to 78% marketshare, but they have been losing it with every passing month bit-by-bit. Bharti Airtel is the next largest with about 13-14% market share, followed by Tata Teleservices with about 6% and most of the rest with Reliance Communications. Please do remember that the subscriber numbers in the Wireline segment are less than 3% of the Wireless subscriber base across the country. But at the same time, the ARPU (Average Revenue Per User) from the Wireline segment is 3 to 4 times that of the Wireless segment, atleast in case of the Private sector operators.

Coming to Wireless Subscribers market shares, the Top-3 operators, (i.e. Airtel, Vodafone & Idea) have strengthened their position with their combined market share improving from 56.1% to 59.2% (310 bps improvement) over the last 6 quarters. Amongst them, Idea Cellular alone has improved it's share by 170 bps. Apart from the Top-3, the operators that have managed an improvement in subscribers market share over last 6 quarters are: Aircel (67 bps), Telenor (85 bps), Videocon (24 bps) and Quadrant (6 bps). Amongst the market share losers, the 3 biggest losers are: BSNL (246 bps), Reliance Comm. (118 bps) and Tata Tele (75 bps).

After losing subscribers market share quarter-after-quarter and also losing it's No.5 position to Aircel, BSNL has finally managed to stop this trend with a minor market share improvement in Sept'15 quarter. As per various media reports, BSNL is said to be back in the game & is looking to ensure it's operational improvement in the coming quarters. BSNL's resurgence and RelJio's entry are 2 big things to worry for all the operators, including the Top-3 trio of Airtel, Vodafone & Idea.

Now let's discuss the AGR market shares as there are quite a few interesting findings here. Here the Top-3 operators have an even stronger hold with almost 70% market share. Airtel has a huge lead with a 30.1% market share and 850 bps lead over the No.2 operator Vodafone. Not just that, Airtel's AGR market share is 650 bps higher than it's own Subscribers market share. In fact, each of the Top-3 operators have an AGR market share higher than their respective Subscribers market shares. Vodafone's AGR share is about 270 bps higher, while Idea's share is about 140 bps higher than it's Subscribers share. This statistic clearly suggests that the quality of subscribers of the Top-3 operators is very good and each of them must be enjoying near Industry-best ARPUs in most of their circles of strength.

The weakest amongst the larger operators is definitely Reliance Communications. It's Subscribers share is a respectable figure of 11.1%, making it the No.4 operator, but it's AGR share is a lowly 4.3%, making it the No.7 operator here. This fact clearly reflects the quality of RCom's subscriber base. RCom certainly must be having the lowest ARPUs in the industry and that too by a huge margin. An AGR share of 680 bps lower than it's own Subscribers share is too massive to ignore. I sometimes do wonder, how did RCom manage this feat even after being in this business for so long. All this despite the fact that RCom has 3G license for the 2 prime Metro circles of Mumbai & Delhi and also has nearly 12 lakh Wireline subscribers, just about 30% less than Tata Tele's Wireline number. Something must be terribly wrong with RCom network & quality of service, which has brought it to this situation.

Other than RCom, operators who have an AGR share lower than their respective Subscribers share are: Aircel (320 bps), Telenor (260 bps) and Videocon (70 bps).

Now coming to those operators who have an AGR share higher than their respective Subscribers share are: BSNL (120 bps), MTNL (120 bps) and Tata Tele (50 bps). The thing that is common between these 3 operators is their healthy Wireline business. BSNL&MTNL together have over 20 million Wireline subscribers, but majority of them must be Residential users still and spread out across several cities. On the other hand, the private sector operators have Wireline business only in a handful of cities and cater mainly to Corporate & SME clients or large Housing complexes. Tata Tele's Wireline subscriber base of about 1.7 million is less than 3% of it's Total Subscribers base, but it's contribution to it's AGR must be easily in the range of 8 to 10%.

On a Trailing-Twelve-Months basis, the Indian Telecom Industry's Total AGR has posted a growth of about 3% Q-o-Q in the recent quarters. Airtel & Vodafone are also growing at a similar pace of between 3% to 3.5% Q-o-Q. Idea Cellular has managed to grow a little faster at rates between 5% to 6% and hence has seen the biggest improvement in Quarterly AGR market share of 210 bps over the last 6 quarters. BSNL's AGR numbers are clearly suggesting the start of it's turnaround. BSNL Quarterly AGR share had fallen from 10.6% in March'14 to a low of 8% in Dec'14, but has smartly bounced back to 9.2% in Sept'15 quarter. And there is also the possibility of operational consolidation between BSNL & MTNL, which could give further impetus to BSNL's resurgence.

RCom again is probably the only major operator who has seen it's T-T-M AGR fall consistently over the recent quarters, from Rs.7885 crores in Dec'14 to Rs.7188 crores in Sept'15. RCom's quarterly AGR share is down from 6.4% in Mar'14 to just 4.3% in Sept'15. And things could worsen further in Dec'15 quarter as RCom is slated to shut down it's 2G operations in a few circles due to license expiry. RCom is solely riding on 2 hopes: first it's consolidation with Sistema, which will add to it's 800/850 MHz spectrum holding and then sharing/trading this spectrum holding with RelJio and ride on the latter's 4G network. The slight chance of consolidating with RelJio is what is keeping RCom alive.

Future Possibilities: 

The war for market share is going to be fought in the Data segment and 4G could be the technology of choice for most operators going forward. Airtel has already launched it's 4G service in over 300 cities/towns across it's 6 or 7 circles on 2300 MHz spectrum. Simultaneously, Airtel is acquiring the smaller 4G 2300 MHz spectrum holders. Rumours are also afloat that Airtel is in talks with Aircel to buy out it's 2300 MHz spectrum holding, which will give Airtel a 4G coverage across over 15 circles. Apart from 2300 MHz holdings, Airtel has 1800 MHz spectrum in many circles and hence Airtel could be the only other 4G player with a pan-India coverage, other than RelJio.

Idea & Vodafone are also rolling out 4G networks on their 1800 MHz spectrum holdings, wherever available. Idea also recently acquired Videocon's 1800 MHz spectrum in 2 circles, which were important to it. The pricing was much higher than the Auction-determined price, but that is the kind of urgency/panic amongst the incumbent operators to rollout 4G networks & try to protect their Revenues after RelJio's onslaught begins. Idea & Vodafone might need to hold hands together to offer a wider 4G presence across maximum circles as they are not self-sufficient, while Airtel is self-sufficient. Both Idea & Vodafone are on the verge of launching their own 4G service in few select cities. Both of them would look to scale up their networks to atleast a few hundred cities each in the circles where they hold good AGR share and wouldn't like to lose it in the coming months.

RCom's possible consolidation with Sistema is already announced. During the same announcement, it was mentioned that RCom will later get merged into Sistema's Global operations. In such a scenario, RCom might only look at spectrum sharing/trading with RelJio. I have a feeling that RelJio might not want to take over anything other than RCom's 800 MHz spectrum. In any case RCom's subscribers quality is not good & low revenue generators. There are reports which suggest that RelJio might look at keeping it's ARPU well over Rs.300/- by offering it's customers the complete package of Voice Calls, Data packs and even different kinds of Content. All this will unfold through the year 2016, starting in a couple of weeks from now. Going by RelJio's potential scale of network rollout, RelJio could be at No.4 or 5 position in AGR stakes in 12 months from now and will certainly be amongst the Top-3 before the end of year 2017.

It is still very unclear on how other operators like Aircel, Tata Tele & Telenor plan on surviving in the coming months/years. Telenor has played by a clear strategy of pure 2G service at ultra-low cost. It has done well by reaching operational break even in most of it's circles of operation. But the success of this strategy will depend on whether or not our Rural population upgrades to Data usage or not. I am sure that Telenor too would like & would have to enter the 4G fray sooner or later. Tata Tele & Aircel, both currently have decent sized operations, but have bigger worries on the Debt front. If they urgently don't get into consolidation mode with some other operator or bring in new larger investors, the chances of their survival are very bleak.

Over the next 12-24 months, I am expecting the following 4-5 players/groups to play an important role in the Indian Telecom space: Airtel & RelJio will certainly be there on their own individual merits; Vodafone & Idea will do better if they join forces via virtual JV or atleast Roaming agreements; BSNL&MTNL with their 3G/Broadband/WiFi services; Amongst the rest I am expecting Telenor to take a lead in some kind of consolidation exercise. I am saying so going by the seriousness with which Telenor has rapidly scaled up it's operations within those limited circles of operations and also achieved operational profitability in most of them. Let's see how things unfold.

Happy Investing!!!

Tata Power - profitability coming back to normal.

Tata Power has been a largely ignored stock for the last few years. Primarily because the entire Power sector was largely ignored by most Investors, reasons for which have been discussed many a times in the past on various forums. But there is something happening over the recent few quarters that Investors are ignoring again, but they should definitely take note of.

Tata Power's consolidated quarterly numbers are showing some handsome signals of improvement in the company's business operations over the last 2-3 quarters. On one hand, Tata Power's Consolidated Quarterly Total Income has posted double-digit Y-o-Y growth for 2 consecutive quarters this fiscal. This has helped the company to post highest ever Quarterly as well as T-T-M Total Income numbers during the Sept'15 quarter. On the other hand, Tata Power has managed to post 4 consecutive quarters of smart improvement in EBITDA margins. Tata Power's T-T-M EBITDA margin at the end of Sept'14 was just 18.50%, which has seen a remarkable improvement to 23.95% by Sept'15.

The huge 400+ bps improvement in EBITDA margins, accompanied by small bit of increase in T-T-M Total Income, has lead to a smart 39% increase in Tata Power's T-T-M EBITDA over the last 1 year. Even as the EBITDA has seen a big jump over the last 2-3 quarters, Tata Power has managed to keep a lid on it's Interest Costs, which has helped the company an over 50% jump in it's T-T-M Cash Profits. This big jump in Cash Profits has enabled the company to return to Net Profits over the last few quarters, despite higher Provisioning. On a T-T-M basis, Tata Power has posted a Net Profit of Rs.845 crores by Sept'15, which translates into an EPS of little over Rs.3/-. Despite all this improvement in operational numbers, Tata Power has seen it's Market Cap slide from over Rs.23,000 crores at the end of Sept'14 to under Rs.17,000 crores by Sept'15. At the current share price of around Rs.62/-, Tata Power trades at less than 6 times it's T-T-M Cash Profit, which itself is improving rapidly. Even at the current price, I think this is attractive valuations based on T-T-M numbers. And the valuations will look even more attractive if we consider the potential improvement in Cash Profit & Net Profit numbers over the next 2-3 quarters.

I think this is an excellent opportunity for long term investors to invest in this sector and Tata Power, alongwith couple of other large Private sector Power Producers like Reliance Power & Adani Power, do make a lot of sense for investors to increase their exposure to these stocks. But the investment horizon should purely be long term.

Wireless Data - the only major hope of Wireless carriers!!

With increasing penetration of 3G networks across the country & rising percentage of subscribers with a Smartphone in their hands, the usage of Wireless Internet services was bound to grow at a very very fast pace. Almost all telecom operators in India, including BSNL, have seen a staggering growth in the monthly consumption of Giga Bytes on their networks, which has translated into an almost similar staggering growth in Revenues from the Wireless Data service over the last 2 years.

I have information from Quarterly reports shared by Bharti Airtel & Idea Cellular, which are two of India's Top-3 Wireless carriers in India. Between Sept'13 and Sept'15, Bharti Airtel's Quarterly Data Revenues have seen an almost 180% jump. During the same period, the company's Quarterly India Telecom Revenues have grown by just 20%. About 80% of this incremental growth over this period of 8 quarters has come from Data Revenues alone. Data now contributes 21.2% of Airtel's Quarterly revenues compared to just 9.1% two years ago.

The quarterly volume of Data carried by Airtel's networks has increased by more than 230% over the last 8 quarters from under 35 million GBs to 115 million GBs. During the same period, the Average Rate per MB charged has come down very gradually from 30 paise to 25.2 paise. This slow erosion in rate is not because of increased competition, but primarily because of increased proportion of subscribers now opting for a Data pack instead of being charged on pay-as-you-use basis.

Coming to Idea Cellular, the company's Quarterly Data revenues have grown an even stronger 211% between Sept'13 and Sept'15. On the other hand Idea's Total Quarterly Revenues have grown by about 38%. Data business has contributed about 48% to Idea's incremental growth over this period of 8 quarters. Data's contribution to Idea's Quarterly revenues has jumped from 8.6% in Sept'13 to 19.3% in Sept'15.

In case of Idea Cellular, the growth in Quarterly Data volumes between Sept'13 and Sept'15 has been even more staggering. From about 17.5 million GBs, the quarterly volume has more than quadrupled to 72 million GBs over the period of 8 quarters. The Average rate per MB has seen a slightly faster erosion for Idea as compared to Airtel. Idea's Average rate per MB has fallen from 31 paise to 23.4 paise over the last 8 quarters. Despite faster growth in volumes and revenues from Data services, the contribution of Data to Idea's Total Quarterly revenues at 19.3% still lags Airtel's figure of 21.2%. This is mainly because Idea has done better with it's Voice business over the last 8 quarters, as compared to Airtel. 

Conclusion: 

As per my estimates & gut feeling, the Indian Telecom industry is at the cusp of a very dramatic change in it's composition. From being a Voice-dominated industry, it will soon take big strides towards being a Data-dominated one, over the next 2-3 years. It will all start with the launch of nationwide 4G services from Reliance Jio Infocom Ltd, which is a subsidiary of Reliance Industries Ltd. Expected to start by the end of this year, Reliance Jio will herald a new wave of communication services, not just Data service. I am expecting Reliance Jio to try & capture even the traditional Voice business by offering VoIP based services. Reliance Jio may or may-not offer the traditional Voice service, where we are charged on a per-sec or per-min basis. Everything could get counted in terms of Mega Bytes & Giga Bytes, even the Voice Calls.

Many of us have already experienced VoIP, either via Whatsapp calling or Google Hangouts or Video/Voice calling via Skype or Facebook Messenger, etc. These things work well only when there is good reliable high-speed internet service at both ends of the conversation. 3G networks have enabled us to have a glimpse of such VoIP services, but the experience has not always been very smooth. Hopefully with 4G speeds, there should be no problem even with HD-voice & HD-video services. Just like the way the use of Mobile Internet shot up with increasing population of Smartphones with subscribers, the use of Voice & Video calling over Internet services will shoot up with increasing penetration of 4G networks across the country. My prediction is that the mobile operators will start experiencing an erosion in their Voice revenues right from the first half of the year 2016, something which they have never experienced in the last 20 years.

All leading operators, including Airtel, Vodafone, Idea, have already started testing their 4G networks in various cities across the country. Airtel has already launched it's 4G service in over 300 cities, but the network coverage currently isn't like full-blanket coverage, but more patchy. Hence the user experience has been quite mixed. But things will improve as all operators are working on war-footing to have some kind of good 4G coverage, atleast in the crucial markets, so that they don't lose too much of revenue-generating customers to the upcoming new competitor. Vodafone has been repeatedly announcing that it will launch it's 4G service in important cities like Mumbai, Kolkata, etc. in December'15 itself and then expand further to other large cities in the following months. Idea Cellular too recently announced plans to launch 4G service in about 150 cities/towns between January & June of 2016. Unfortunately, none of these three big operators have All-India 4G-compatible spectrum and hence they will ultimately get into Roaming Agreements amongst themselves to offer maximum coverage to their subscribers. 

Another thing that the existing incumbent operators will be worrying about is: rapid erosion in the Average Rate per MB they are able to charge after Reliance Jio starts commercial operations. At the moment the Big-3 are able to charge around 23 to 25 paise per MB. But I am expecting that the rates will rapidly fall to something like 10 to 15 paise per MB within 6 months of Jio's launch. So we can call it a double-whammy for all the existing operators. On one hand a part of the existing as well as incremental Data consumption will start shifting to Reliance Jio, while on the other hand the rates will also fall at a rapid pace in the initial few months. We could see some knee-jerk reaction in the first few months from all operators as they try to protect their revenues & market shares as much as possible. Things might start stabilising about 3 quarters after launch of Reliance Jio's operations.

Until now the combined 3G network capacity of all operators has been falling short of the market demand. Hence the user experience has been like 'kabhi khushi...kabhi gham'. Once Reliance Jio opens it's gates, a Huge Empty Network capacity will become available, which will try & pull subscribers from all angles. It might take a couple of quarters to analyse how long before the surging demand is able to completely consume the available supply (capacity). We will see rate corrections happening until the supply (network capacity) is substantially more than the demand. Things will only stabilise after that. As per my guess, we are barely 6-weeks away from getting to experience Reliance Jio's 4G services. So let's just spend these 6-weeks in anticipation of some big excitement!!

Reliance Power Ltd. - Q2 result on expected lines. Stock started moving finally!!

Reliance Power announced Q2 numbers exactly as per expectations, though slightly better EBITDA and Cash Profit numbers. The following charts shows the progress of Reliance Power's Quarterly numbers since Sept'2013 Quarter to Sept'2015 Quarter:

The Quarterly numbers clearly show the step up since June'2015 quarter when the company started consolidating Sasan UMPP's numbers. This is expected to be the biggest step-up in numbers the company will see in many future quarters. Reliance Power's numbers will see more small step-ups when the company's Solar or Hydro Power projects will start adding to the company's consolidated numbers. A 100 MW Concentrated Solar project is ready and the company should soon start consolidating it's numbers. Then there is the 700 MW Solar PV project being implemented in Rajasthan, which will come on stream by the end of next fiscal. Reliance Power also has quite a few Hydro Power projects totaling over 5000 MW capacity, in it's pipeline, but their exact status is not known.

Reliance Power is expected to report an EPS of close to Rs.5 for FY'16, while the Cash-EPS is expected to be over Rs.9.50/-. Considering the strong Cash position of the company after having successfully commissioned it's largest Greenfield project, Reliance Power has today announced it's Maiden Interim Dividend of Re.1 per share. This is a big development for the company's shareholders. It is the first dividend from the company in it's over 7 years of listed history. This is a good start. The interim dividend will consume a little less than 25% of the company's H1 FY'16's Cash Profit and about 40% of the H1's Net Profit. The company will need some capital for CAPEX required for new projects. So we cannot expect very high dividend payouts, even 20% of Annual Profits will be good enough. But Reliance Power's annual dividends will see gradual improvement in line with improvement in annual profits.

Have a look at Reliance Power's share price movement. From a high of over Rs.110 in June'2014, the stock was continuously falling. The stock seems to have made a bottom during the recent Aug-Sept market correction. After hitting lows of about Rs.33, the stock has seen a smart rally to around levels close to Rs.50/-. The stock is attempting to cross it's 200-Days Moving Average now. Once successful, we can expect Reliance Power's stock price to get into an uptrend and march towards the 3-digit mark over the next 6-12 months.

Happy Investing!! 

Reliance Industries Ltd. - Segmentwise Contributions Update.

Everybody knows that Reliance Industries Ltd. (RIL) posted it's best ever quarterly Net Profit figure for the Quarter ending Sept.'15. RIL's performance was boosted by it's two core business segments of Refining & Petrochemicals. All other segments had a subdued performance.

Here I will be sharing my analysis of Trailing-Twelve-Months numbers of RIL's segmentwise EBIT & Capital Employed numbers over the last 2 years and then present my expectations of how things could move over the next 2 years. First have a look at the Charts below:

In Sept'13, Refining & Petrochemicals together contributed about 88% of the company's Total EBIT of Rs.24,290 crores. Over the next 12 months, by Sept'14, RIL's Total EBIT grew by 14+% to Rs.27,765 crores. Oil&Gas, Retail and Media&Broadband segments posted faster growth rates, though on smaller bases, which pulled down the contribution from Refining & Petrochemicals segments to 84% of RIL's Total EBIT.

Over the last 12 months, i.e. for the period ending Sept'15, RIL's Total EBIT has posted a Y-o-Y growth of another 11+% to hit a figure of Rs.30,910 crores. Almost all this growth has come from the Refining business alone, which grew it's EBIT by a staggering 27% Y-o-Y. This alongwith the 5% growth in EBIT from Petrochemicals segment, pushed the contribution from these 2 core segments to 90% of RIL's Total EBIT. 50% drop in EBIT from Oil&Gas segment too aided this.

Now let's come to the other interesting part, i.e. Capital Employed in different segments. Between Sept'13 and Sept'15, RIL's Total Capital Employed number has increased by nearly Rs.1,00,000 crores. The Refining & Petrochemicals segments, which contribute around 90% of the company's EBIT, contributed just under 40% to this incremental Capital Employed number (36% from Refining & 3.5% from Petrochemicals). Part of the increase in Capital in the Refining segment could be because of the company's pile up of Crude Inventory, while the prices are low. 15% of the incremental Capital has gone towards Oil&Gas segment, most of it towards the company's Shale Gas subsidiaries in the US. Retail has consumed a negligible 1% of the incremental Capital. The remaining 44% of the incremental Capital has gone towards the Media&Broadband segment. Most of it towards the rollout of RelJio's 4G network.

If you look at the Chart alongside, more than 50% of RIL's Capital is now invested in businesses other than Refining & Petrochemicals, primarily in Oil&Gas and Media&Broadband. But the Revenue & Profit contribution from these segments is negligible currently. The contribution from Oil&Gas segment has been severely affected due to sudden & sharp fall in Global Crude Oil & Gas prices. This segment's growth is now linked to recovery in Oil & Gas prices.

The more interesting story will be the start of commercial 4G & Broadband services, slated to happen from the end of this year. The company seems to have done huge amount of ground work for a massive rollout, which has not been seen in India ever. January to March'16 will be the introductory launch phase for the company. There will be massive promotions across various media to increase the visibility of the Jio brand and all it's services across the country. Revenues for the company will start pouring in during this period, but it will be very small compared to the Expenses the company will entail towards this business & it's promotional activities. Hence we can expect the company to report a substantial EBIT Loss for this business during the quarter ending March'16. I am expecting the EBIT Loss to be anywhere in the region of Rs.3000 to 5500 crores. From April'16 onwards, the company's revenues are expected to grow at a very fast pace, which we will call the Ramp-up phase for the company. The revenues will keep increasing month after month, but the Expenses will grow at a much slower pace as most of the Operating Expenses will be steady right from Day-1. Hence the company's EBIT Losses will keep reducing with every passing month. I am expecting RIL's 4G & Broadband business to break-even at an EBIT level in about 6-8 quarters of the launch of services, i.e. by about June-December'17. These expectations might seem a bit on the optimistic side, but I think the company is going to be extremely aggressive in expanding this business and hence it could be an achievable target.

While the ramp up of RIL's 4G business will be happening, it's major CAPEX on the Petrochemicals side will also come on stream next year, which is expected to boost the company's Profits substantially. That means on one side the 4G business will report large losses in the initial few quarters, but at the same time the company's profits from the core business are expected to increase. The combined effect will mean that the Net Profit's may not get completely wiped out for anything more than 1 or 2 quarters. Beyond those 1 or 2 quarters, i.e. post June'16, it could be a double booster for RIL's profit numbers. On one side the 4G Losses will keep reducing with every passing quarter and profits from Petrochemicals segment will keep increasing till March'17 as the major CAPEX comes fully on-stream. FY'2017-18 will be the year to watch out for in terms of Reliance Industries Ltd's Financial performance. It could take RIL into a completely new trajectory.

Let's wait & watch if my expectations do turn out to be true!!

Happy Investing!!

SKS Microfinance - opportunity to invest at attractive valuation!!

I had written my first report on SKS Microfinance Ltd about 7 months back. Here is the link to that report: http://stockslogic.blogspot.in/2015/03/sks-microfinance-limited-successful.html

The company has continued it's smart recovery in business performance. SKS Microfinance Ltd's T-T-M Total Income has now increased to Rs.917 crores by June'15, which is 55% higher Y-o-Y. The company's T-T-M Net Profit has reached Rs.199.50 crores, which is 74% higher Y-o-Y, despite the fact that the company has paid an Income Tax of Rs.24 crores during the last 2 quarters after it's Tax adjustment eligibility against past losses seems to be getting over. The company's PBT figure was higher by over 95% Y-o-Y. Thanks to the Tax being paid from the recent 2 quarters, the Y-o-Y growth for Net Profit might seem lower for the next 2-3 quarters, than the numbers reported earlier. After that things will normalise. Have a look at the charts below:

With every passing quarter, SKS Microfinance is spreading it's reach at a steady pace. Focus is clearly on expanding it's business outside of Andhra Pradesh. In order to maintain tight check on quality of it's loan portfolio, the company is strictly disbursing loans only for Income-generating activities. Odisha & Karnataka continue to be the Top-2 states contributing to SKS's business, with Maharashtra, Bihar & West Bengal next in line. The company has a presence in total of 16 states with no state, other than Odisha or Karnataka, contributing to more than 15% to it's Loan portfolio. SKS Microfinance has seen a 25% Y-o-Y increase in it's Average Loan Size in Q1-FY'16 to over Rs.13,300/-. This is extremely positive from the margin point of view. With increasing business scale, the Cost-to-Income ratio is showing a marked improvement with every passing quarter. The Average Quarterly Disbursement, which was around Rs.1200 crores a year ago, has jumped to about Rs.2400 crores over the last 2 quarters.

Coming to stock performance, it had hit a multi-year high of around Rs.580/- in the last week of July'15. Since then the stock of SKS Microfinance Ltd has seen it's first major correction. The stock has corrected to levels of about Rs.380 by the last week of September'15.

 This correction has given an opportunity to long term investors who were looking to invest in SKS Microfinance at decent valuations. At the current price of around Rs.425/-, SKS Microfinance Ltd trades at a P/E ratio of about 26-27 times it's T-T-M EPS. Considering the company's current growth momentum and the potential of future growth continuity, these valuations aren't expensive. Infact it can be termed as attractive. The company's Total Income could very well double from current level of little over Rs.900 crores to around Rs.1800 crores in the next 4 to 6 quarters. The Net Profit may not grow at the same pace as Total Income, but still will post very good growth to ensure that current valuations to look cheap in the long term.

Happy Investing !!!

Car Sales - New launches help boost market share!!

Indian car market is quite funny. We have over 10 car manufacturers selling their products in the Indian market, where we see monthly sales of around of 2.2 lakh units. But about 65% market share is held by the Top-2 manufacturers. Maruti Suzuki Ltd being the dominant player with market share swinging between 45 to 50% and Hyundai Motors India Ltd is a distant 2nd with market share between 16 to 18%. Toyota & Volkswagen, who are fighting for the No.1 spot in the Global Car market, are at No.5 & No.8 respectively in India with market share of around 5% and 2.4% respectively.

Market shares as per despatches data declared.

Have a look at the table alongside. Maruti Suzuki has managed to increase it's market share from 45.5% in Q1 of this calendar year to over 49.3% in the first 2 months of Q3. Launches of New Dzire, Celerio Diesel, S-Cross and Ciaz SHVS in the recent months have clearly help boost the numbers. In case of Maruti Suzuki, the Alto, Dzire and Swift are the Top-3 models contributing about 55 to 60% of it's monthly volumes.

Hyundai India too had one big bang launch couple of months ago, that of the SUV Creta. It's said to have a huge order backlog and the company is trying it's best to convert most of the orders into sales, before the competition reacts. For the company, Elite i20, Grand i10 and Creta are currently the Top-3 models, contributing about 70% of the company's monthly sales. It's other products like Eon, Xcent and Verna have seen lackluster sales in the recent months.

Honda was the other manufacturer with a new launch in the recent few months. It's premium hatchback Jazz was relaunched and is doing decent numbers. But the car maker seems to have issues with it's manufacturing capacity and not able to despatch more vehicles. Still Honda managed to grab the No.3 Rank from Mahindra in the recent months.

Mahindra's overall sales have been dwindling gradually. But the company has just launched a new compact SUV at an attractive price point and hopes to inch back some market share which it had lost in the recent months. The company also has another 2 products, which could be launched in the next 4-6 months, one of them being aimed at the hatchback segment, but is a super-compact SUV. It will be an interesting product to watch.

Toyota & Tata Motors are fighting for the No.5 rank, but they could have two new challengers soon in the form of Ford and Renault. Ford has launched it's compact sedan last month and will be launching a hatchback based on the same platform soon. Together these 2 products can do handsome numbers and bring Ford to the No.5 fight. Renault has showcased it's Alto-competitor Kwid this month and deliveries are expected to start next month. Going by the reviews, Renault will be finding it tough to meet the demand for this car, if it manages to price it in the bracket it has promised. In the recent months, Renault & Nissan have been badly hit because of Hyundai Creta launch, which directly affected sales of Duster and Terrano. Mahindra's new launches will further aggravate the problem for them. Kwid is their one big hope for garnering good volumes.

Volkswagen group is doing steady with regular updates to their existing models. No big change expected soon.

IRB Infra. Developers Ltd - On road to smooth progress!!

India's largest pure-play Road Developer, IRB Infrastructure Developers Ltd., seems to be now on smooth growth path, though not at a very high pace. Between December'12 to December'14, IRB's T-T-M Total Income hovered between Rs.3700 to 3900 crores mark. But IRB has now managed to post near-10% Y-o-Y Growth in Total Income for three consecutive quarters, after 4 consecutive quarters of slight negative Y-o-Y growth, which has helped the company take it's T-T-M Total Income past the Rs.4000 crores mark at the end of June'15, for the first time in the company's history. Have a look at the charts below:

T-T-M numbers

IRB's EBITDA has done much better than it's Total Income in terms of growth. IRB's EBITDA was growing at a modest pace till March'14 quarter, but the growth pace has clearly picked up from June'14 quarter. Until the September'13 quarter, IRB's EBITDA margin was steady at little over the 46% mark. But since then the company has worked hard on reducing it's overheads and minor operating costs, which has helped bring the company's EBITDA margin to around the 59% mark by June'15 quarter. This is fabulous work!! IRB's management clearly used the lean period of growth to work on lowering costs, which will help the company tremendously in the coming quarters.

On one hand IRB was managing to curtail it's operating costs, but on the other hand it's Interest cost was rising sharply between June'13 quarter to September'14 quarter. IRB's T-T-M Interest Cost stood at Rs.627 crores at the end of June'13 quarter, which was about 35% of it's EBITDA then. In the following 5 quarters, it shot up to touch a figure of Rs.857 crores by Sept'14 quarter, constituting about 41.2% of the company's EBITDA then. Over the last 3 quarters, the company's Interest Cost rise has been slightly lower than growth in EBITDA, which helped bring down the Interest-to-EBITDA % down to 39.7%. During the last 3 quarters, the company's Interest Cost has continued to increase Y-o-Y & Q-o-Q, but the EBITDA has grown at a slightly faster pace. The recent marginal rate cuts by banks and the possibility of further rate cuts from RBI in the coming month(s) will only help IRB to control it's Interest burden and improve it's Profit margins.

IRB has also increased it's Depreciation provisioning starting from June'14 quarter. It's T-T-M Depreciation number has jumped to over 30% of the company's EBITDA now, compared to around 25-26% figure till June'14 quarter. This does not impact the company's Cash Profits, but does impact it's Net Profit numbers. But in a way it's good, because lower Profit-before-Tax also means lower Tax Outgo and it's Assets are De-capitalised sooner due to higher Depreciation provisioning.

Valuations: IRB recently raised some Equity Capital via issue of shares, which led to dilution of Equity to the tune of about 6%. This additional capital will help the company either curtail it's Interest Cost or while Investing in newer projects. Post dilution of Equity, IRB's T-T-M Net EPS stands at almost Rs.16/-, while it's Cash EPS stands at over Rs.36/-. That means at the current price of around Rs.220 per share, it trades at less than 14 times it's Net EPS and just about 6 times it's Cash EPS. I think this valuation is on the cheaper side, considering the company's recent improvement in Financial performance and also the potential growth in the Industry that the company operates in. The Indian Govt. is giving a major thrust to the country's Infrastructure development and construction of Roads & Highways forms the most prominent part of it. There will be no dearth of projects to bid for in the coming months & years. And I am pretty sure that IRB's management will judiciously bid for projects that they can comfortably handle & commission. IRB's growth can continue at a steady pace in the coming many quarters. Hence I think it makes sense to be invested in a company like IRB at the current valuations with potential of more than doubling in the next 1-2 years.

Bajaj Auto's Exports are back on track.

About three months back I had posted a report on Bajaj Auto, where we had noted the dip in sales (both domestic & exports) for the company during the months of January & February of this year. This dip had impacted the company's performance during Q4 of last fiscal. Bajaj's domestic sales recovered sharply during the months of March to May, but exports started recovering only from April. After remaining steady around the 1.6 lakhs mark for 4 months upto July, Bajaj's exports have posted it's strongest monthly number till date of 1,81,658 for August'15. This is smart recovery & the company's exports are well & truly on the growth path again, though at a smaller percentage on a larger base of last year.

For the first 5 months of this fiscal, Bajaj Auto has sold a total of about 16.85 lakh units, domestic & export combined and 2-wheeler & 3-wheeler combined, which is a Y-o-Y growth of about 2.5%. While domestic sales have grown by just about 0.5%, exports have grown by about 5%. In fact, this year we could see Bajaj's exports number to be higher than domestic for the full year for the first time. In FY'15 Bajaj exported 18.06 lakh units compared to sales of over 20 lakh units in the domestic market. During the first 5 months, Exports are at 8.23 lakhs and domestic sales at 8.62 lakhs, than means the gap has reduced from over 10% in FY'15 to just about 5% during this fiscal.

Coming to segment performance, Bajaj's motorcycle sales have stabilised this year after posting over 4% drop during FY'15. In the April-August period, Bajaj's motorcycle sales have increased by about 1.5%, which could be driven by new product launches done a few months back. Bajaj's CV sales, i.e. 3-wheelers, are higher by about 9% this year again, after posting a healthy 14% growth last year. Bajaj Auto had underperformed massively last year compared to it's peers like Honda and TVS and even Hero. But this year almost all of them are struggling for growth. Hero has posted negative growth for 2 or 3 months in a row now. Honda's & TVS's growth is now down to low single digits. So Bajaj is not far from it's competitors this year in terms of growth numbers.

It will be interesting to watch how domestic sales pan out in the coming months, especially because rural market constitutes a very large portion of sales and demand there is expected to be muted because of lower-than-normal rains in about half of the country. New launches have given some good momentum to Bajaj's sales and all competitors are planning new launches in the coming months. All eyes will be on the upcoming festival season. Also there are reports that Bajaj's Quadricycle is undergoing ARAI certification. If approved the vehicle could be launched before the end of this calendar year.

Telcos Circlewise Gross Revenues - Some interesting bits.

TRAI recently posted data on circlewise Gross Revenues & AGR for each telecom operator in India for the April-June'15 period. I collated data on 8 significant operators into my spreadsheets to do some analysis. The operators in sequence from largest to smallest in terms of Gross Revenues are: Airtel, Vodafone, Idea, BSNL/MTNL, Tata, RCom, Aircel & Uninor. The surprise here is that this sequence is not the same if arranged in terms of Subscriber base.

RCom & Aircel are No.4 & No.5 in terms of subscriber market share, but are at No.6 & 7 respectively in terms of Revenue market share. If we look at the corresponding numbers for Subscriber & Revenue market share % for each operator, the Top-3 show a common trend of having a larger Revenue market share number compared to Subscriber market share. This trend shows that these operators have high quality subscribers generating higher than Industry ARPUs. In case of BSNL/MTNL & Tata too, their ARPUs must be slightly more than the Industry averages. But look at the numbers for RCom, Aircel & Uninor. Their Revenue market shares are much lower than subscriber market shares, indicating that the quality of subscribers is much inferior. Amongst all these operators, Vodafone, Idea, Aircel & Uninor are pureplay mobile service providers, whereas BSNL/MTNL, Airtel, Tata & RCom also offer Wireline services with market shares of 74%, 13%, 6.5% and 4.5% respectively. Since Wireline subscribers normally generate higher ARPU than Wireless ones, this factor does help boost the operators Revenue market shares.

Circle-wise Revenues:

Airtel commands over 30% Revenue Market Share (RMS) across the country, which consists of 22 operating circles. But Airtel's RMS is in the region of 14% to 23% in 7 of those circles. The weakest circle for Airtel is Kerala, where it has only 14.4% RMS and is not even in the Top-3 operators. On the other hand the strongest circle for Airtel is Karnataka, where it commands a stupendous 47.5% RMS and it contributes 11.8% to Airtel's Total Revenues. Apart from Karnataka, there are 6 other circles where Airtel commands over 40% RMS. Also Airtel is No.1 operator in a total of 12 circles and is No.2 or 3 in 9 other circles.

Coming to Vodafone, it commands less than 23% RMS across India and is a distant 2nd. But Vodafone is No.1 in 6 circles (Gujarat, Haryana, Mumbai, Kolkata, UP-East & West Bengal) where it commands a total RMS of almost 33%. Vodafone is not in the Top-3 operators list in only 3 circles (HP, J&K and MP) where it commands just about 10% RMS. HP & J&K are in any case very very small circles with their total contribution less than 2% of Gross All-India Revenues for all operators put together. Vodafone is also strong in all the Metro circles. In Delhi, Mumbai, Kolkata and TN (including Chennai) circles, Vodafone commands a RMS of 28.6%, just behind Airtel's RMS figure of 29.2%.

Idea Cellular is a distant 3rd ranker currently with 18.2% All-India RMS, but is the fastest growing operator on a Y-o-Y comparison amongst the 8 operators I have considered. Idea held 16.4% RMS in June'14 quarter, i.e. it managed to improve it's RMS by 180 bps in just 1 year in such a competitive market. Despite being All-India No.3, Idea commands 1st position in 4 significant circles of Kerala, Maharashtra, MP & UP-West, where it holds a strong 35.2% RMS. In another 4 circles of AP, Gujarat, Haryana and Punjab, Idea commands RMS between 22 and 28% and is the No.2 operator here. Idea's RMS is in single digit (< 10%) in another 8 circles, which includes metro circles of Mumbai, Kolkata and TN. This is because Idea was a relatively late entrant in these circles.

There is a huge gap between the RMS of the Top-3 operators and the rest of the pack. BSNL/MTNL is currently the 4th largest operator with 8.7% RMS in June'15 quarter, about 180 bps less than what it held in June'14 quarter. With the recent steps taken by the NDA govt. to arrest decline in the PSU operator's landline business and to improve prospects of it's wireless business with improved 3G coverage and aggressive pricing, we could see BSNL/MTNL posting slower decline for a few quarters and then even post some growth later on. It's RMS is quite steady across circles with the weakest being in Bihar circle at 3.9% and strongest being in Kerala circle with 17.1%. Hopefully we will see this PSU behemoth survive in the coming years.

Next one is Tata Teleservices with 6.7% RMS across India, but it's absent from 3 circles of Noth-East, Assam and J&K. Karnataka circle is it's biggest contributor with 14% of it's Total All-India Revenues coming from this circle alone and it is also the No.3 operator here with 12.3% RMS, which is very very respectable considering the fact that Tata has been amongst the latest entrant in the GSM business amongst all the larger operators. It is interesting to note that most of the circles where it has posted healthy Y-o-Y growth in revenues are those where it holds 3G license. Apart from Karnataka, TTSL has posted healthy growth in circles of MP, Haryana, Mumbai, Orissa, Maharashtra & Kerala. 5 of these 7 circles are 3G circles. Strong growth in Mumbai circle was a surprise as Tata does not hold a 3G license here, but serves it's customers with CDMA-based Photon services and also has a strong Wireline business here. Amongst Tata's weakest circles are West Bengal, HP, Bihar & Rajasthan, where it has a RMS of between 1% and 3% only. Performance in Delhi circle if TTSL is also surprising as it does not have GSM or 3G business in this circle. Only CDMA and Wireline. But still it generates decent revenues and holds a respectable 5.5% RMS too.

Aircel is a largely regional player, but with All-India presence. The TN circle alone generates 30% of Aircel revenues, but even here it is the No.3 player. Aircel has 20+% RMS in circles of Assam, Noth-East and J&K and is a strong No.2 in these circles. In the last one year, Aircel has posted strong growth in circles of Bihar, Delhi and Mumbai, but on small numbers as it commands less than 6% RMS in these circles. Aircel has nearly shut down services in couple of circles like Haryana & MP and is probably depending on Roaming agreements alone. Going forward this will be a good idea for the smaller operators to focus on their circles of strength and depend on Roaming arrangements for the remaining circles. They can save considerable amount of resources by doing so & improve their profitability in the bargain.

RCom is a complete disappointment. It is neither strong in the circles where it has been operating a GSM business for 20 years, nor is it strong in the circles where it holds a 3G license. TTSL which is a younger and smaller operator than RCom, generates 20% higher Gross Revenues. RCom paid through the nose to buy 3G license in the two prime Metro circles of Mumbai & Delhi, but it commands a disappointing 8.6% and 7% RMS respectively here. RCom has been overambitious in making it's plans, but very poor in implementing them.

Uninor has done the smart thing by focusing on select circles and building a reasonable size of operations in them and then look at newer circles. Uninor commands a RMS of nearly 9% in UP-East & West circles, which is very very commendable. Even in Bihar & Gujarat it has over 6% RMS. All this by being the 'Sabse Sasta' operator. No 3G & 4G currently. It's strategy has worked well till now. But will be interesting to see it's progress in the coming quarters.

Bharti Airtel vs Idea Cellular - Which is the best Telecom stock?

The options for investing in Telecom are quite limited in India. Only the No.1 (i.e. Bharti Airtel), No.3 (i.e. Idea Cellular) & No.4 (i.e. Reliance Communications) mobile operators in India are listed on Indian stock exchanges. Tata Teleservices (Mah.) Ltd., which is a small part of the No.7 operator TTSL, is also listed, but can be termed as a regional player due to it's 2-circle operations. Another option that can be ignored is MTNL, which is again a 2-metro circles operation only and can be termed as completely lacklustre due to it's past performance.

Other players like Vodafone, Uninor, Aircel, BSNL, etc. are unlisted entities. Amongst the listed options, it is only the Top-2, i.e. Bharti Airtel & Idea Cellular, which are reporting strong growth in their India operations and also commanding strong market shares and consistant profitability. Bharti Airtel has operations in about 20 countries, which includes India and few other South-Asian countries and also in many countries of Africa. Bharti Airtel is also not just a pure-play mobile services provider, but it offers a gamut of services like DTH, Wireline, International Bandwidth, etc. The contribution from India-based business is nearly 60-65% in Bharti Airtel's Topline. On the other hand Idea Cellular is a pure-play mobile services provider based only in India.

In terms of size, Bharti Airtel is nearly 3 times the size of Idea Cellular, when Toplines are considered. To compare their performances over the recent 3 years, what I did was to compare how much percentage was Idea Cellular's Consolidated T-T-M numbers compared to Bharti Airtel's Consolidated T-T-M numbers. If the 2 companies grew at the same pace, then the percentage number will remain stagnant, but if Idea Cellular has grown faster, then the percentage number will rise & vice-versa. Have a look at the charts below. I have compared T-T-M numbers from June'2012 to June'2015 to give us a reasonable idea of who outperformed over the last 3 years.

From the charts above, it is extremely obvious that Idea Cellular has been the clear outperformer on Total Income, EBITDA and Cash Profit front. In the case of Total Income, Idea Cellular's number was just about 28% of Bharti Airtel's number at the end of June'12, which remained around the same level till March'13. But over the next 9 quarters, that percentage has shot up to touch a figure of 35.8% by June'15. There are two primary reasons for this huge outperformance by Idea Cellular: One being Idea's faster growth by some margin in the Indian Telecom market; and Second being very slow or negligible growth in Bharti Airtel's Africa business, which contributes over 25% to the company's Total Income.

On the EBITDA and Cash Profit front, the outperformance by Idea Cellular is even more staggering!! At the end of June'12, Idea's EBITDA formed just 22.3% of Airtel's EBITDA. But the number has shot up to 37.6% by June'15, i.e. over the last 12 quarters. In case of Cash Profits, the percentage number has nearly doubled from a level of 21.9% in June'12 to 42.8% in June'15. This is just too big an outperformance to ignore. Now look at the progress of T-T-M Cash Profit margins for the two companies. Bharti Airtel's Cash Profit margin dropped from 24.1% in June'12 to a figure of 21.5% in June'14, but has started improving after that to touch a figure of 22.8% in June'15. In case of Idea Cellular, the change has been consistently positive from a level of 19% in June'12 to a very very respectable figure of 27.3% in June'15.

Valuations: At the current price of Rs.157 per share, Idea Cellular commands a Market Cap of Rs.56,500 crores, which is 6.2 times it's T-T-M Cash Profit. In case of Bharti Airtel, the Market Cap stands at about Rs.1,52,000 crores at the current price of Rs.380 per share. At this price, it trades at about 7.2 times it's T-T-M Cash Profit. What this means is that despite strong outperformance on all Financial parameters over the last 3 years, Idea Cellular still trades at about 15% cheaper valuations compared to it's larger peer Bharti Airtel.

Could this mean that the market expects Bharti Airtel to better face the upcoming competition compared to Idea Cellular? If we look at the spectrum holdings in Indian space, Bharti Airtel is clearly the better bet as it holds considerable amount in all crucial frequencies like 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz in various circles. After the recent auctions, Bharti Airtel is now said to be able to offer 3G services on either 2100 MHz or 900 MHz spectrum in 21 of the 23 circles in the country and hence will be less dependent on Roaming arrangements. Bharti Airtel can use it's 2300 MHz and 1800 MHz band holdings for 4G services, but it doesn't have these holdings in all the circles at the moment. On the other hand, what Idea Cellular has done is to ensure that it has enough spectrum holdings in all it's prime circles where it is No.1 or 2 operator and is able to combat any competition as these circles contribute nearly 65-70% of it's Revenues and almost all it's profits. Idea Cellular has a combination of holdings in the 900 MHz, 1800 MHz and 2100 MHz bands in most of the circles of operations. Idea Cellular will use a combination of 3G and 4G technologies using these bands to protect it's revenues from upcoming competition. 4G on 1800 MHz band in certain circles and 3G on 900 MHz and 2100 MHz bands in most of the other circles.

The developments are going to be fast & very very interesting to watch in the coming few quarters. The upcoming competition from RelJio is not very far and the existing operators will have to move swiftly to try & protect their revenues. The Data services market has been exploding over the last few years and the growth is expected to remain strong over the next few years. Every operator is trying to arm themselves with capacities to take a good chunk of this growth. I am not going to hazard a guess as to who will do better in protecting their revenues from the new competition next year onwards or whether the new competition will actually make a huge dent in the market shares or not. I would like to wait for more things to unfold & then take a calculated guess.

Adani Power Ltd. - Focus will now shift to profitability.

Adani Power Ltd. has been in the news quite often over the last 12 months over acquisition of different Power projects. In August'14, Adani Power announced signing of agreements for acquisition of Lanco's 1200 MW Udipi Power plant and the deal was completed just after Q1 of this fiscal started. In November'14, Adani Power has announced takeover of Avantha Group's Korba West unit of 600 MW Coal-based plant. That deal too is expected to be completed anytime now. Apart from the Korba unit, Adani Power's operational power generation capacity stands at 10,440 MW, almost all of it being Coal-based projects. The addition of Korba unit will take it to over 11,000 MW capacity, consolidating it's position as the largest Private sector Power Producer in India.

Adani Power will not stop expanding here. As per currently known plans, the Korba West unit is already implementing addition of another 600 MW capacity, which Adani Power will expedite soon after completing acquisition formalities. Adani Group has also signed agreements for setting up 10,000 MW Solar power capacities with Govt. of Rajasthan. But this agreement has been signed by Adani Enterprises and not Adani Power. So it's likely that Adani Power may not play any role in that investment.

Quarterly Numbers

Adani Power is likely to pursue acquisition of other troubled Coal-based Power projects to add to it's capacities in the coming years. But at the moment, it will surely be looking at boosting profitability of it's existing operations. Things have been turning favourable on this front with substantial drop in Coal prices and increased production volumes by Coal India, which in turn is making more Coal available in the domestic market. A substantial part of Adani Power's capacity is running on imported Coal, which is putting pressure on the company's profitability. I think Adani Power would like to partly compensate that with domestic Coal to bring down the average cost.

Two other developments are under process, which should boost Adani Power's operations: One is the refinancing of it's debt under RBI's 5/25 scheme, where Banks can extend loans to large Infrastructure Projects for longer durations of upto 20 or 25 years, depending on the project's expected cash flows. Adani Power is already to talking to it's Bankers to converting it's loans under this scheme. If successful, it should help reduce the pressure to some extent on the company's Cash outflows towards Interest payment as well as Principal repayment. This will be an incremental gain apart from the possibility of reduction of rates in the coming monitory policy announcements.

The Second reason is the Govt of India's action towards improving the health of the several financially ill State Discoms. The Central Govt is closely working with many State Govts to work out packages for turning around their Discom's operations to make them sustainable. Thanks to huge accumulated losses as well as ongoing operating losses, many of the state discoms were either not able to make full payments towards power purchased from producers or not able to purchase more power to meet the increasing demand for power, leading to continued Load-shedding in several regions of different states. On one hand the Discoms are being pushed to reduce their leakages, which will make their operations become sustainable and on the other hand the Govts will step in to workout a package to take care of their past dues. This process will happen in stages over the next 1-2 years and we could start seeing some evident results only by end of next year.

The demand for power normally grows at a rate faster than the economy's growth rate. If the economy is expected to grow at 7-8% Y-o-Y, then Power demand could post a growth of around 10%. Many of the older power plants, which have been in operations for over 30 or 35 years, will need to be shut sooner or later as they are a lot less efficient than the newer ones, leading to high pollution as well as high cost of production. This is where the newer projects will come in as replacement capacities for the older capacities, primarily owned by State Utilities or NTPC.

To summarise..... the worst seems to be over for most of the troubled as well as operational power producers, who haven't seen profits since a very long time. Things are expected to improve substantially over the coming 4 to 8 quarters, though the improvements will vary from project to project.

TTML Q1-FY'16 Update - Positive progress, but is it too late?

Tata Teleservices (Mah.) Ltd reported a sharp improvement in it's quarterly numbers for Q1 of this fiscal. TTML's Total Income was flat Q-o-Q at Rs.758 crores despite the fact that revenues from Interconnect charges had reduced sharply during this quarter. This was made possible by continued growth in revenues from Wireless Data revenues. Stable revenues with a sharp drop in Interconnect Costs & Employee expenses resulted in a sharp 28% jump in TTML's EBITDA for the quarter to it's best ever figure of Rs.219 crores and an EBITDA margin of 28.9%, which is 640 bps higher than the previous quarter. The higher EBITDA also helped TTML bring down it's Interest Cost by 5% Q-o-Q and resulted in the company posting it's best quarterly Cash Profit figure in the last 5-6 years!!

Have a look at the charts below:

Quarterly numbers

TTML's Total Income has been growing at a slow pace of around 5% Y-o-Y, while it's larger competitors are posting healthy double-digit growth rates. It's mainly because the larger operators have been aggressive both on 3G network rollout and marketing of it's services. TTML on the other hand expanded it's 3G coverage in RoM&G circle beyond the top few cities only in the last 2-3 quarters. Over the last few years, TTML was adding good number of subscribers to it's GSM network, but also losing substantial number of subscribers from it's CDMA network. The proportion of CDMA voice subscribers on it's network is now very small. The company could soon be using it's 800 MHz spectrum holdings for 4G rollout in both Mumbai and RoM&G circles, especially since the company has acquired fresh 2.5 MHz in this band in the recent auctions.

Coming back to Q1 numbers, TTML's EBITDA jumped from about Rs.170 crores to about Rs.219 crores Q-o-Q. This is despite a 5% jump in Network Operating costs on the back of expanding 3G coverage.

Quarterly Numbers

The primary reasons being 25% drop in Interconnect Costs on the back of reduction in interconnect fee from 20 paise/min to 14 paise/min by the telecom regulator and 44% drop in Employee Costs. (Have a look at the charts alongside) As we can see from the charts, the Interconnect Cost was rising sharply from the Sept'14 quarter to the March'15 quarter on the back of increased voice call volumes on TTML's GSM network after the company got aggressive on the 3G rollout front. In June'15 quarter, the Interconnect cost has dropped to less than Rs.125 crores from over Rs.168 crores in the previous quarter, translating into a savings of over Rs.43 crores for the company. Add to that the company's Employee costs have dropped by about Rs.19 crores to hit the lowest level in many years. The reasons behind this are unknown.

The total savings of about Rs.62 crores from these 2 parameters helped improve TTML's EBITDA by about Rs.49 crores, which improved the company's Cash position and helped in a reduction of about Rs.9 crores in the company's Interest Cost Q-o-Q, which bolstered it's Cash Profit further to hit a level of over Rs.52 crores from a Cash Loss of Rs.5 crores in the previous quarter. This smart return to Cash Profit should make the company's Bankers happy, who will now have more confidence in the company's 4G network rollout plans. We should see some action on the 4G front from TTML early in 2016, soon after RelJio's commercial launch of 4G services by the end of this year.

Over the next few months we could also see Tata Teleservices dropping the 'DoCoMo' brand and adopting a new Brand name. It will be interesting to see if the company drops the brand only after definitive agreement is signed with another Telecom company for sale of stake in the company or the company reverts to something like the Tata Indicom brand before that. Or they could synchronize the change of Brand name with the launch of 4G services. We will have to wait for a few months to get more details on this.

Coming to TTML's VLR subscriber base (i.e. Active subscriber base), it's quite interesting to note that the company experiences a drop during the months of March to May of every year. In the year 2014, TTML saw a drop of over 2.5 lakh VLR subscribers during those 3 months, which were more than recovered in the following 3 months. This year too TTML's VLR base dropped by over 4 lakh during the same 3 months of March to May. I am guessing that it is because these months include summer vacations for schools in India and many families travel to their home towns during this period. Since there are many people in Maharashtra who are natives of other states, it does make sense that there is an outflow of people from the state during the summer vacations. A drop in VLR base must be having a negative impact on the company's revenues. And despite this negative impact of near 6% drop in VLR base during these months, TTML managing to hold to it's Total Income figure is a definite positive. We could see some decent growth in the company's Total Income during the current quarter as the VLR base returns back to normal during these months. 

Reliance Power - on a Sasan UMPP booster!!

Until Q4 of FY'15, Reliance Power's Quarterly Total Income had stabilised around the Rs.1800 crores mark & Cash Profit was around the Rs.375 to 390 crores range. In my previous report on Reliance Power I had mentioned my expectations from the company's first UMPP at Sasan. I was expecting an addition of about Rs.800-850 crores to the Quarterly Revenues and an addition of Rs.100 crores to the Quarterly Cash Profit, on the conservative side. The Interest burden was expected to consume most of the revenues from this project.

But the Q1-FY'16 result clearly proved that my estimates were quite conservative truly. RPower's Total Income jump was around Rs.1000 crores, while Cash Profit jumped by around Rs.200 crores. Infact the project even contributed to the company's Net Profit right in the first quarter of consolidation!! This performance is much better than expected. In absolute sense, RPower's Total Income was higher by 58% Y-o-Y, EBITDA was higher by 82%, Cash Profit was higher by 58% and Net Profit was higher by 41%. We can expect similar kind of number for the remaining 3 quarter of this year.

Trailing-Twelve-Months Numbers

We can expect RPower's T-T-M Total Income to progress from a little over Rs.8200 crores currently to closer to about Rs.12000 crores by the end of this fiscal. RPower's T-T-M EBITDA, which currently stands at little under Rs.3500 crores, will progress to a little over Rs.5000 crores over the next 3 quarters and the Cash Profit will go past the Rs.2300 crores mark. Now look at the Market Cap chart above. RPower's Market Cap has continuously fallen from levels close to Rs.30,000 crores at the end of June'14 to under Rs.12,000 crores today (at a price of under Rs.42/- per share today.). This is completely senseless, isn't it? RPower's annual Cash Profit is expected to improve to over Rs.2300 crores in the next three quarters and the company is valued at just about 5 times of that number!! This is irrationally low valuation and reflects the fear that investors have in their minds about Power companies in general and the disappointment & anger associated with RPower during it's IPO time. But it is excellent opportunity for those investors who can ignore the above two factors.

Reliance Power is one company in the power sector which is have good operational projects with no issues related to fuel availability to these operating projects. No issues related to repayment of debt even at the consolidated level. All it's projects are working at very healthy PLF levels of over 80% comfortably, quarter after quarter. RPower clearly has healthy Cash Position, unlike most other Private sector power producers who are struggling even to cover their operating costs & interest payments. Despite all these positives, RPower is trading at such pathetic valuations. Just doesn't make any sense.

I think RPower deserves to double from current levels over the next 3-4 quarters to get to a Market Cap of 10 times it's annual Cash Profits, if not more. At a price of about Rs.80-85 per share, RPower will still be trading at about 18 times it's T-T-M expected EPS of about Rs.4.50 to 5/-.

Another positive is that RPower is not going aggressively after increasing it's Thermal Power capacities. I think this is positive because there are many thermal power projects which are currently struggling. Instead RPower is increasing it's Renewable Power capacities, mainly Solar. RPower has 45 MW Solar PV capacity operational in Rajasthan since the last year or so, and another 45 MW Wind Power capacity operational in Maharashtra. Both these projects together are generating about 3.5 crore units of electricity every quarter, translating into revenues of around Rs.200 crores & with negligible operating costs. During the June'15 quarter, another 100 MW Concentrated Solar Plant in Rajasthan has started generating electricity and will add to the company's revenues and cash profits from Sept.'15 quarter. At the same time RPower is working on commissioning another 700 MW Solar PV capacity, which could get operational sometime during the next 12-18 months.

During the recent Bangladesh visit of our PM, there was news about Adani Power & Reliance Power investing in setting up Thermal power capacities in that country. In case of Reliance Power, that project is not going to entail Huge Capex as the company already has Project Equipment ready & unused at one of it's proposed project site in Andhra Pradesh, which never took off due to lack of Gas availability. Reliance Power has announced that it will be using the same equipment for the Bangladesh project. I am not giving too much importance to this project currently because it is atleast 3 years away from commissioning.

As of now we should focus on the current operating capacities and the upcoming Solar capacities only.

RelJio Tsunami coming in December'15.

Mukesh Ambani just spelled out the launch plans for Jio at Reliance Industries' AGM. First let me highlight the salient points mentioned:

* Jio is already present in all 29 states in 18,000 cities & towns. 80% countrywide coverage at the start.

* Jio currently undergoing testing, Beta launch in a couple of months and Full Commercial launch in December'2015.

* Jio network will be scaled up to 100% countrywide coverage in 3 years.

* Jio already has capability to serve 100 million customers, which will be scaled up further in coming years.

* Jio is working with OEMs to introduce 4G handsets from under Rs.4000 price point by December'15.

* Several apps are ready for launch, like JioChat (audio-video messenger), JioDrive (cloud storage), JioPlay (media & entertainment), JioMoney (digital wallet), etc.

* Jio has also applied for MSO license to offer broadcasting services over it's 4G & Fibre network.

......... More details & views will be added soon to this article.

Data Revenues - Now and the Next 2 years.

All telecom operators in India are currently dependent on the increasing Wireless Data usage to see their Revenues grow. The last 12-18 months have been the most exciting for all operators, especially the ones who have 3G operations in a decent number of circles. Until about 2 years ago, the CDMA operators (i.e. Reliance Communications & Tata Teleservices) were enjoying a rapid increase in their revenues from Wireless Data services because they were able to launch high-speed internet services using EVDO technology, which was primarily used via USB dongles. The subscribers of these services were giving reasonably high monthly revenues, mostly in the range of Rs.500 to 1000/- and their monthly usage was in the range of 2GB to 10GB. But the CDMA operators had introduced the EVDO network in limited number of urban centres in every circle and the monthly subscriber additions were only in a few thousands.

Over the last 2 years we have seen all 3G license holders expand their networks at a ferocious speed. Now we have 3G networks in hundreds of cities & towns in every circle and even major highways have been covered. People started using 3G services for PCs via USB/WiFi dongles as well as in their Smartphones. Every month lakhs on subscribers started using 3G services and now we have nearly 20% of the total mobile subscriber base of all 3G operators using the Data services. Initially the Average Monthly Data usage per subscriber was less than 400 MB, but it has been rising with every quarter and it is close to 700 MB now. This trend of increasing usage will continue for a long time to come. The Smartphone penetration is increasing and people have started using it not just for communication & social networking, but also for entertainment via watching videos, TV shows and live matches. All this added to the fact that Internet usage is quite addictive in nature, we will see more & more people using more & more Internet with every passing quarter.

Coming to the Revenues part, FY'15 was quite a landmark year, where most operators posted nearly 60-75% increase in their revenues from Data services on the back of near doubling of Data volumes on their networks. As per my estimates, the mobile industry generated around Rs.35,000 crores in Total Data Revenues in FY'15, translating in over 15% of it's overall Total Revenues. A year ago this number was well under 10%. Bharti Airtel leads with around 22% market share and FY'15 Data revenues of about Rs.7800 crores. Vodafone mostly holds the 2nd position with about Rs.7000 crores and 20% market share. These 2 operators along with Idea Cellular, together command over 55% market share currently. Other details as per my Estimates are mentioned in the Table alongside. Let us now focus on how things could progress over the next 2 years.

The biggest change that will happen in FY'16 for the Wireless Data business is the entry of Reliance Jio Infocom with it's 4G services. It has been delayed to quite an extent, but the company will have to introduce the services latest by Q2 of this fiscal. Initially the services will be launched in limited number of cities across the country, but will be rapidly expanded to take it to nearly 5000 cities & towns over the next 12-24 months. Since the company will have limited urban coverage and action for less than 9 months of this fiscal, I have estimated RelJio to capture about 8% market share in FY'16 with Total revenues of about Rs.4000 crores. With the entry of RelJio, it is widely expected that all the existing operators will experience a substantial slowdown in their growth as a section of their subscriber base will certainly shift to the new 4G operator. RelJio is expected to have the widest 4G coverage in India and also offer the most competitive tariffs, which will certainly attract the usage of heavy Data users across the country.

Coming to tariffs, operators like Airtel & Idea have declared in their quarterly reports that the net realisation is close to 25 paise per MB, which translates into a rate of about Rs.250 per GB. The same must be true for Vodafone. These three operators together offer 3G services almost across the country with the widest coverage in every circle and best quality subscriber base and hence charge slightly premium rates. The 2nd rung of operators like Reliance Communications, Aircel and TTSL (RAT) are now trying to play catch-up with the trio of larger operators (AVI). They are enhancing 3G coverage rapidly in their respective circles and are also looking at tying up internal roaming agreements to offer a near All-India 3G coverage to compete with AVI. The trio of RAT is trying to attract subscriber attention by offering an effective rate of well under Rs.200 per GB. With increasing coverage, they are certainly seeing success with traffic & revenues shooting up in recent quarters.

When RelJio launches, we could see further aggressive pricing with effective rates of under Rs.150 per GB for lower plans and going down to under Rs.100 per GB for higher plans. Initially RelJio is expected to target households with good Smartphone presence. Imagine a family with 4 members with almost everyone using a Smartphone. If RelJio offers them WiFi routers with plans like 10GB for Rs.1000/- or less per month, will the family not consider it as an attractive offer? I am sure there are lakhs of such households which will grab such offers. Then there are lakhs of SMEs which need internet connectivity for their business operations, which will also take to RelJio's services via WiFi routers. Initially the WiFi routers will form the biggest business segment for RelJio because their sim cards will not work in over 95% of the Smartphones currently in use as they don't work on 4G LTE networks. 4G LTE smartphones are now getting launched at a rapid pace, but for it's penetration to increase to respectable levels will take another year or two easily.

By the end of FY'17, we could see RelJio's subscriber base to be anywhere between 20 to 40 million with an ARPU anywhere in the range of Rs.400 to 700 per month. Depending on the success of RelJio's services, competition will have to react and reduce their effective tariffs to avoid most of their premium users from shifting to the new operator. This will certainly have an impact on their growth rates. The Industry's total Data revenues is estimated to grow from Rs.35,000 crores in FY'15 to about Rs.50,000 crores in FY'16 and to Rs.66,000 crores in FY'17. And I am expecting RelJio to go from 0% market share in FY'15 to over 20% market share in FY'17. I think the trio of AVI to manage the increased competition in the best way amongst all other operators. Going by the spectrum holdings that these three operators have managed to pile up, they will still manage to grow by about 10% to 15% even in FY'17, when RelJio's aggression is expected to be much higher than in FY'16. All other operators, including the trio of RAT, are expected to struggle for growth in FY'17. Some of them could even be looking at their survival chances depleting. We could see some substantial M&A deals happening during FY'17, if not earlier.

Pls remember, all the thoughts mentioned above are My personal Estimates. It will be really interesting to see how things progress once RelJio's services are launched.

Following are the links to the Easy Results Summary pages of the listed Telecom operators:

Bharti Airtel Ltd.

Idea Cellular Ltd.

Reliance Communications Ltd.

Tata Teleservices (M) Ltd.

Eicher Motors Ltd. - Volvo exits it's investment completely.

Exactly three months ago I had written a report on 'over-valuation' of Eicher Motors Ltd. (Click here for that report). In that report I had mentioned Volvo selling more than half of it's holding in Eicher Ltd at a price of little over Rs.15,000/- per share.

During this 3 months period, Eicher Motors stock corrected a bit from levels of over Rs.16,000 to about Rs.14,000/-. But the stock again rallied some more post announcement of March'15 quarterly results to hit a new high of little over Rs.19,000/-. This rally seems to have prompted Volvo to sell the remainder of it's holding too. The sale of the remaining 10 lakh shares, constituting about 3.7% of Eicher Motors' equity was done today morning at a price between Rs.17200 & Rs.18200/-, at a discount to yesterday's closing price. Remember at this price, Eicher Motors' stock trades at about 70 times it's EPS, which ( I would like to repeat ) is very very high valuation for a manufacturing company. I think at the current price Eicher Motors stock is already pricing in growth for the next 2 years atleast, if not more.

According to me, Volvo has done the smart thing of booking all it's profit at current valuations. It's 7-8 years old investment has yielded returns of about 25 to 28 times it's investment. And even after this sale of holding, Volvo's JV with Eicher for manufacture of HCVs stays un-impacted. Since the JV is doing absolutely fine on the business front, I am not expecting Volvo to pull out of it anytime in the near future. But Volvo selling it's over 8% holding in Eicher Motors Ltd in two tranches within a space of just about 3 months is ample hint to other investors. Firstly this deal certifies that the stock is clearly over-valued, because Volvo's JV with Eicher too was part of the the Consolidated entity of Eicher Motors Ltd. Secondly, the floating stock of Eicher Motors Ltd has suddenly increased by nearly 22 lakh shares in the last 3 months.

( Click here for Eicher Motors' Easy Results Summary page. )